Reader Mailbag: Baseball Season

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.1. Inheritance concerns2. Emergency fund size3. Using Roth as emergency fund4. Frugal odor elimination5. Home warranty6. Estimating child costs7. Maxing out IRA contributions8. Board games worth it?9. Student loan woes10. Giving up hobbies

Opening Day for Major League Baseball is this week. I’ve been a baseball fan since I was in diapers and some of my best memories of childhood involve listening to baseball games on the radio with my dad or watching them on television with my family and friends. Baseball and basketball are the two sports I truly enjoy (yes, I’m an American who isn’t a big fan of football).

Most days, you’ll find me listening to baseball day games on the radio, particularly during the week. If the Chicago Cubs have a 1:20 start time during the week, you can almost be sure that I’m listening to that game here in Iowa.

(Last year, I had a fantasy baseball league with several readers. I’m not going to repeat that this year – one league is enough for me to focus on. I came in the middle of the pack, by the way.)

Q1: Inheritance concerns
My grandparents have always been savers and despite never making $50,000/year combined, have invested well and now have a sizable sum saved (somewhere over $3 million).

My grandfather passed away last summer and left everything to my grandmother. Since that time, my grandmother has written her will to give each of the grandchildren $10K in cash and $50K in stocks/bonds.

When my grandmother passes (which, thankfully, will be a long ways off, she’s in the best health I’ve ever seen her in) and I receive this inheritance, I want to be prepared for what to do with it. I’m 27, have no debt and am in great financial shape, so the vast majority (if not all of it) will go to my retirement fund. The part I’m worried about is the stock/bonds. It’s in accounts that are appropriate for an 80 year old, but not for a 27 year old. My question is should I cash this stock out (and take the tax hit) and reinvest it in my portfolio or should I leave it in the stocks/bonds she has it in? I realize that asking her for the inheritance now makes more sense tax-wise, but it’s absolutely not an option due to family dynamics.
– Joe

You’re going to take the tax hit either sooner or later. You’re probably better off getting the money under your control and into your portfolio as you would like to have it sooner rather than later.

Thus, if I were in your shoes, I’d sell the stocks and bonds as soon as I inherited them, pay the taxes on it, then incorporate what remains of the $50,000 into your portfolio as you see fit.

Of course, tax laws may change by then, but my understanding is that the taxes on inherited stocks are based on the day your grandparent dies and, when sold, generate long term capital gains. In other words, the tax on the investments shouldn’t be too enormous.

Q2: Emergency fund size
I have a question for you and your lovely readers about how much money to keep in an emergency fund. I’m well aware that this is a personal decision, and one that is the result of many factors. I’m 26 and living in a large metropolitan city without any family around me. I’ve already decided that my goal is to have 6 months worth of money in an account to use in case of a catastrophic event (I have to pay large hospital bills, I lose my job, etc.). I’m very close!!

My question is this – my 6 months savings value fluctuates by $3,000 (less than the available credit on my paid off credit card) depending on which bills I decide to cut. The higher value represents what I spend currently, while the lower represents my “cut back” version. If you were to suggest things to cut from your expenses if you were to suffer a loss of work or somehow had to live off of your savings – where would you start?

Also, would you suggest using the available credit on your paid off credit card as “part” of your emergency fund?

I’m not sure if this adds anything, but I currently put $1,000/month into this fund, and I’m looking to move apartments next year (which will require about $5,000-6,000 to move if I choose to do so upfront – moving is expensive in my area!). Whatever value I end up with, I’d want the moving fee in my savings account on top of that cushion so that when I move, I still have 6 months worth of $$ in savings.
– Katie

I would use your “cut-back” number, simply because it reflects how you would live in a situation where you were living off of your emergency fund. If you lost your job, you wouldn’t be going out to eat with coworkers a few times a week, after all.

Sometimes, yes, your “cut-back” number will change. When it does, adjust your emergency fund accordingly. I wouldn’t withdraw from it if your “cut-back” number goes down, though.

Either way, you’re in very good shape to tackle whatever may come.

Q3: Using Roth as emergency fund
Here is my situation. I currently have about $60,000 of credit card debt because of a failed business years ago and no emergency fund. My interest rates are relatively low because I have good credit. I have a very secure job with excellent health insurance, short and long term disability insurance and the organization contributes 10% of my salary into a 403B plan (the older I get, the more they will contribute). I am currently renting and have no desire to buy property because of the high prices in the DC area. Because of these factors, the chances of me needed an emergency fund are pretty low, but I would still like to start one with a goal of at least 6 months of expenses.

I currently have around $1,200 extra a month after expenses and minimum credit card payments which I’m currently putting towards my debt. My question is this. Would it make sense to open a Roth IRA and contribute part of my extra money to that each month? Since you can withdrawal any amount up to the principal without taxes and penalty, I figure I can be accomplishing saving for retirement AND building an emergency fund at the same time while paying on my debt. If there is an emergency I can use that money, if not, it’s growing tax-free for retirement.

Can you see any drawbacks to this plan?
– Shawn

If your Roth is not part of your current retirement planning, it does make some sense. However, there are a few drawbacks with this plan worth noting.

First, your savings in the roth is going to be capped at the annual Roth limit, which is currently $5,500. If you’re going to sock away $1,200 a month, you’re going to have your Roth IRA full in about four or five months, at which point you’ll be saving in another vehicle.

Second, the earnings you gain on this savings plan will not be usable by you right now. It will basically be untouchable until retirement.

My suggestion, honestly, would be to just open up a normal investment account through an investment house you trust and invest directly, not through a Roth. That way, you have immediate access to the gains, though you will have to pay taxes on them.

Q4: Frugal odor elimination
I was wondering if you had any frugal, diy suggestions on home odor control. I have a dog and two cats and a six-month-old baby, and I’ve recently declared war on the bad smells around here! Also, my husband can’t smell, so it’s totally a one-woman battle :-) I’ve been using coupons to buy plug-in oil warmers (Febreeze, Air Wick brands), which I love but I realize once you get the plug-in for free with the coupons, you’re on the hook for the oil refills, which run $2-$3 a piece and last about a month. I already have three in the house, and want add two more, but that’s a cost of around $15/month. I also use Febreeze-type sprays on furniture and carpet foam on the rugsl. Any ideas on cheaper ways to keep my house smelling fresh?
– Sarah

Baking soda is your answer.

One solution is to simply spread a bit of baking soda onto a saucer, then sit that saucer in an area where smells are very strong and leave it there overnight. You can also put some baking soda into shoes with a heavy odor.

To replace a Febreze spray, just add 1 1/2 cups of water to a spray bottle and 1 teaspoon of baking soda, then shake it thoroughly before re-inserting the trigger so that all of the soda is dissolved into the water.

Weirdly, that same formula works really well for curing upset stomachs.

Q5: Home warranty
My husband and I purchased a home a little over a year ago, and as a “closing gift” our realtor gave us a 1 year home warranty with a large national company. We went ahead and renewed the policy when it came due a few months ago. Mainly because our home is older with a furnace and water heater towards the end of their lifespans… and if they were to fail our warranty company would cover the replacements. Over the course of the last 16 months we’ve used the benefits 4 times for minor items. I am wondering if it is even worth paying the yearly premium of $560 on the chance that we will even use the benefits to the fullest.
– Lindsey

Home warranties are, on the average, never going to be worth what you pay for them. If they were, the companies wouldn’t sell them – it wouldn’t make any sense for them to be paying out more than they’re bringing in.

A much better approach is to take that yearly premium, subtract about 20% off of it, and put it each year into a savings account. Forget about that savings account until you need a major home replacement that you can’t afford out of pocket, then dip into that savings for that new furnace or central air unit or whatever it is you need.

This way, you’re not spending as much, you’re gaining interest on what you save, and you don’t have to play paperwork games when something does go wrong.

Q6: Estimating child costs
My wife and I are beginning to think about having children, but I have no idea how to estimate what having a kid costs. Beyond knowing that the medical expenses associated with the birth aren’t cheap (and that kids cost money to feed/clothe/house/etc), I don’t know a thing. What should I expect it to cost, both in terms of more or less up-front medical (and maternity clothing) costs associated with pregnancy, as well as an estimate of how much I should expect my annual expenses to go up? Are there any good resources you’d recommend to help me inform myself?
– Andy

The numbers you get are going to wildly vary depending on the assumptions the people involved are making.

Are you going to a secondhand maternity shop for clothes or to a boutique retailer? Are you buying a $1,000 custom made crib or a $50 one at a department store? Are you hitting yard sales for children’s clothes or are you making Baby Gap your go-to place? Is your wife choosing to directly feed the child, or are you going to be buying lots of formula? Are you going to cloth diaper or are you going to go through Pampers by the case? Do you expect to continue your same dining patterns except with a child in tow or are you going to eat more at home with healthy options? Do you need additional room in your home for the baby or does your current domicile provide what you need?

There are countless questions involved in such a model. Certainly, there are costs involved with having a child. Whether or not those costs are backbreaking or whether they’re absorbed easily into your changing lifestyle has a lot more to do with what you value than the child itself.

Your best approach is to start thinking about these questions now and start looking at the actual prices involved.

Q7: Maxing out IRA contributions
I am interested in opening up a Roth IRA and I know the cutoff for making a maximum contribution this year is coming up with the tax deadline. Is the benefit to maxing this years contribution enough to warrant taking some extra money out of my savings to make it happen? I can do this and still maintain my 6mo emergency fund. But if there isn’t a big benefit, I can just open the IRA in a few months and work on maxing out next years contributions.
– Jim

It depends on whether you’re in good shape with other aspects of retirement savings or not. Do you have a well-funded 401(k) at work? Have you been saving at a good rate for a long time?

The more tenuous your retirement savings is, the more I’d lean towards using cash savings to bolster your Roth.

Of course, no matter what, I wouldn’t let that emergency fund get below $1,000 at the lowest, and preferably I’d keep it a bit higher than that.

Q8: Board games worth it?
I’ve been looking at some of the board games you’ve mentioned before, but the price seems crazy. $40? If I play it once for an hour, that’s not a good bargain. Please tell me how this is frugal.
– Evan

For starters, many of the games in my collection cost far less than $40 new. My best estimate, using online tools of various kinds, is that the average new cost of a game in my collection is somewhere around $18.

For another factor, many of the games I own were picked up at thrift stores, acquired by trades, purchased only during sales, and so forth, further lowering the average cost per game. Beyond that, many of the games I own were gifts from friends and family.

Add on top of that the fact that a single game is entertaining a table of people for hours, and that when I visit my friends I’m usually playing their games, the actual cost per hour of entertainment per person is quite low.

When the average cost per game gets down in the $8 range, I’m pretty happy. I’ll usually not pick up a game unless I’m pretty confident it’ll hit our table several times (at least).

If you’re not certain about whether you’d like a game, visit a gaming store in your local area and ask to try some of the games. Many such stores have weekly demo days where they’ll show you how to play a game and then you can make up your own mind about it.

Q9: Student loan woes
I have a student loan of 40K at 6%, when I returned to school after many years of working. After I graduated, the first year, I deferred payment. I am now in my second year and in forbearance, paying approx. 250/month. That covers only the monthly interest. Next year, I need to start paying $452 per month, full amount. Our kids goes to college in less than 2 years and I am paying for a state college fund/plan for him, monthly. I should have about 1.5 year’s of college credit paid for, by the time he starts college. My spouse works part time, because he lost his permanent job, several years ago. He’s not highly employable (chronic depression and PTSD, with medication), so I am the primary earner, and have been for many years. We all have medical benefits through my job, and they withdraw from my paycheck: I pay dearly at $700 per month. We have ONE $4000 credit card debt at 14%, no others. We refinanced our mortgage recently, saving us about $200 per month, with a 200K mortgage balance. I participate in my employers retirement plan. Our savings account is about $700. No cable, no cell, no entertainment, one car paid, groceries bought from outlet, clothes bought at Goodwill. We pay about $500 per month for private school tuition for our son.

Question #1: should I opt for Income Reduction plan for my student loan? I have serious anxiety about my student loan balance. I do not want our son to have a student loan, if possible. Because I work at a higher institution, they offer tuition benefits for dependents. He does not want to opt for this. He wants to apply out of state and seek scholarships. He’s got a GPA of 3.7 and thinks he can do it. I reminded him about the hidden costs of college.

Question #2: How do we convince him to apply in our hometown, so he cannot be straddled with any education debts, like me? My fear is that he will be wooed by a student loan debt that I will have to help him pay for. I cannot. I have my own student debt and cannot rely on my spouse’s future income. By the way, I used part of my student loan to help pay for our family living expenses at the time I was a grad student, because we were short on funds. I did not see the train coming. I should have bitten the bullet and REJECTED the excess loan amount offered to me from financial aid. PLEASE HELP me to see that there is HOPE. I’ve tried applying for higher paying jobs but they are scarce and very competitive. Taking deep breaths!
– Mary

For your first question, I’m not entirely sure what you mean. Do you mean that you want to set aside money from your check automatically to cover your student loan payment? Or are you wanting to somehow apply portions of your pay to your child’s education if he attends that university? If you’re having trouble consistently paying your student loan, having it automatically withdrawn is probably a good choice as it will force financial discipline on you.

For the second question, why would you help him with his student loans? There’s no reason for you to do so. My parents didn’t help me with my loans, and my wife’s parents only helped in that they took out a few loans themselves to help pay for her college education – they didn’t make payments for us later on. This is his decision and those are his consequences, so you shouldn’t be tied down by them.

I think you’re just in a routine right now where you handle everything for everyone in your life. You’re clearly handling things for your husband and you’ve been a parent, too. It’s hard to imagine not handling things, but that’s where your path is headed with your son. Let him take the reins.

Q10: Giving up hobbies
How can you just decide to give up a hobby if it’s something you love? You’ve talked before about how you tore things down to just focusing on The Simple Dollar as a hobby. That would be boring.
– Ed

If you think that focusing on one hobby is boring, that’s fine. However, that means that your spare time is going to be split among a number of activities and you’ll never gain the momentum with any one of them that you would need to find a career related to it.

I chose to focus on my writing and The Simple Dollar for two reasons. First, and this was the big one, I enjoyed it. I loved to write and I wanted to get better at it. I knew the only way I would improve is with some intense focus. Second, I did have dreams of making it work professionally, and without a lot of work, I knew that would never happen.

It’s not a choice that everyone would make, but it’s a choice that worked for me.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

It sounds like what Mary means by her first question is: should she opt for the Income Contingent repayment plan for her student loans. It sounds like that may be a good option for her.

As far as how to convince her son to stay in state, I don’t think you can. She’s asking her son to do-as-I-say-and-not-as-I-do with regards to taking loans for his education. In my limited experience, that doesn’t work. It is his choice where to attend school, and rightly so. Many more such life decisions may be coming soon as he reaches young adulthood; best to get used to that feeling now.

Re: #1: I don’t think the tax bite should be a problem: if the stock is valued at $50K on the day that she inherits and she sells reasonably soon after that, the only tax bill will be on what the stock gains from date of death to date of sale. It would have to be a heck of a market gain and even then the tax would only be on the amount over the $50K.

Definitely agree with Trent on this one. If you are only playing the board game once for one hour then you aren’t actually enjoying the game and I would question why you bought it in the first place, or why you aren’t selling it used ASAP.

My most expensive game is probably the $50 I dropped on Axis and Allies 1942 when it came out. Since there there have probably been hundreds of man hours put into the game, great investment by my estimation.

I am actually considering spending the $73 on Amazon for a new expansion of the game.

It all depends on how much you use the game, the more you use it the more of a value it is.

You’re single and 26 years old and living in a large city, but moving to a new apartment in the same city will cost you $5,000-$6,000 dollars?

I’m similar to you and moved from Montreal to Toronto last year for less than $1,200 and my apartment was over 1,000 square feet and fully furnished. What on God’s Green Earth are you spending $5k-$6k on? Are you planning to hire the most expensive movers in the world for your precious Ikea antiques?

Can’t believe Trent didn’t even mention that. For $6k you could buy a whole new apartment worth of furniture and just ditch your old stuff behind you.

Q4 – You can also use a few drops of vanilla in a small bowl. Or vinegar (it doesn’t make the house smell like vinegar, just cuts the odor.)

I’ve also had amazing results using a drop or two of lavender essential oil – we had a horrible & persistent, overwhelming odor problem due to a bat infestation in the attic, and after 2 days of the lavender oil, it was GONE. Probably any essential oil would do the same.

Convincing a high school student not to go out of state (if they’ve set their mind on it) is going to be borderline impossible. I considered going out of state, but got a wake up call when I calculated the total 4 year cost.

I would run a student loan calculator showing how much he’ll have to pay after graduation. Assuming he borrows $80,000 for 4 years of out of state, the monthly repayment is almost $1,000 per month, assuming standard 10 year repayment.

With a GPA of 3.7 though, it’s possible he’ll receive a decent amount of scholarships and the huge cost of out of state may be reduced.

In my experience, home warranties are wortheless. The contractors the warranty company sets up to do the work in your home are usually poorly ranked on Angie’s list / BBB and you don’t have a choice about who does the work. We had one our first year after we bought the house (paid for by the seller). Only one of the many problems we had was covered by the warranty. Not covered: a crack that grew in the foundation, requiring a $5500 foundation repair; pest control; gutter that fell off; small roof problem; garage door opener issue; garbage disposal issue; tree roots in the sewer line (very expensive plumber bill). They totally gave us the run around about the one item they did cover (the transformer on the furnace blew).

Q9: It’s true that where your son goes to school is his decision, but you can (and in my opinion, should) provide guidance. The choice to take on tens of thousands of dollars in student loan debt is a big deal, and it’s not a decision that most 18-year-olds are fully equipped to handle.

So talk to him about your student loan, and how it means that you’ll be paying $450/month every month for many years. Try to help him understand what that really means: What could you (or he) be doing with an extra $450/month? Also talk to him about what happens if you lose your job and can’t pay – that’s a big deal too.

Why doesn’t he want to go to the school in your hometown? Is he ready for a change of scenery? Or is he worried that he won’t get any privacy from Mom and Dad? Could you work out a deal where he could go to the local school and live in the dorms (or in an apartment) with all the other students, and only come “home” to visit every few weeks or so? Maybe also point out to him that if he goes to the local school, it won’t be as important for him to spend his summers earning money, so he could spend them doing internships (or volunteer work, or taking classes, or doing research) in other cities out of state.

Home warranty companies will try their darndest to get out of paying anything. We used it twice in our first year in the home. The second time I heard the plumber fighting with the company on the phone about why they should cover a small repair. My guess is if your furnace died, they would find a way not to pay for a new one. $500 is a lot of money to be paying for an uncertain arrangement.

Wow Adam P – I usually appreciate your comments, but that was a little rude. I am guessing Katie is referring to first and last month’s rent, security deposit, and utility deposits in addition to moving expenses. If she is living in a high-cost area (“large metropolitan city”) first and last month’s rent alone could easily be $3000-$4000 before you add anything else in.

Q1: Joe, when you inherit investments, those investments will get what’s called a “step-up” in basis. Essentially, they will be treated as though you paid fair market value for them on the day of the settlement of the estate. If you sell them immediately, you would have to pay the short term capital gains tax on any gains you see above the $50k.

1) Don’t even think about your inheritance now. Don’t make plans for it. Don’t count on it. Act for retirement like it’s not even there. When you actually receive the money, decide then what you want to do with it – as others have mentioned, the gains taxed will just be the difference between when *you* acquire it and when you sell it, it’s not based on today’s value. And also, it could be another 20 years! It makes no sense to plan for it now, or make any financial decisions based on it.

2) This wasn’t answered directly but I’m a firm believer that you should never include a line of available credit as ‘part’ of your emergency fund. Also, I agree with others that your moving costs seem extremely high.

9) I agree with others that basically say, your son will have to make his own decision and the best you can do is to guide him. It’s very possible that between scholarships and grants, he *won’t* have to take out student loans. Just work with him on the ‘hidden costs’ of college – the combined cost of tuition/board/travel/etc and come up with real figures on what the schools he wants will need. And make it absolutely clear that there’s no way you can cosign any student loans for him. Once he finds out where he’s accepted and what each school offers in the form of a financial aid package, then a better decision can be made. Also, tell him that the only thing you ask of him is to apply to the local school and see what they have to offer for comparison, that application doesn’t mean committment but that it’d be reassuring to you.

Adam-
I don’t know about Canada, but unless you hire a very shady moving company–or do most of the work yourself–moving even a small household in the US is very expensive. $5-6K for a move, particularly on the east or west coasts, is not at all unusual.

Plus–“your precious Ikea antiques”?? What gives you the right to be such a know-it-all jerk?

Q3: Shawn says he wants to use only a portion of the $1200/month for his emergency fund/Roth IRA. The rest would presumably still go toward paying down the credit cards, which makes sense – even a “relatively low” credit card interest rate is probably still pretty high, so paying down the credit card debt should be a priority.

So to answer Shawn’s question: No, there are basically no drawbacks to using a Roth as an emergency fund, provided that you’re not already maxing out the Roth as a retirement fund. You probably want to keep your emergency fund money in something safe like a money-market account (which you can have within the Roth), and with interest rates as low as they are right now, the “gains” that you won’t be able to access are basically nonexistent.

The advantage is that, if a day comes when you no longer need the Roth money as an emergency fund (say, you manage to put together an separate emergency fund outside of the Roth), you can move the Roth money into something with more potential for growth, and then it can grow tax-free for retirement.

Q5 – I don’t recommend the home warranty either (we got a 1-year policy as a gift from our realtor as well, but didn’t renew) but you should be saving WAAAAAAY more than Trent’s recommended $450/year for home maintenance. Most advice is 1% of your home’s value, minimum, per year.

Courtney, first months rent is a wash since she’d pay that in her old place too.

Similarly- Last month’s rent, assuming she’s renting now (she is), would also be a wash since she likely will not pay the last month of the place she’s in now or will get it back once she has left and they determine she hasn’t destroyed the place.

So…I say again, $5k-$6k in *EXPENSE*? No. That’s really out of control and not correct unless she is hiring the world’s most expensive movers or has nothing but pianos for furniture.

$5 or $6k for a 1 bedroom apartment move in the same city is considered normal in the US in an East or West coast big city? Are you kidding me? Canada is MORE expensive than the USA, not less (minimum wage in Ontario is now $10.25 an hour, and our dollar is worth more than the US$).

If Katie has friends (she seems nice enough) she can pack all her belongings herself, throw her friends one HECK of a party for $500 for helping her and hire a moving truck for a day for $200. And yes, that is true in the city. I fail to see how anyone can justify $5k or $6k for a 1 bedroom apartment move in the same city, yet some of you are doing that. On a frugal website, no less. I’m baffled.

If she must hire movers instead of friends, go to Craigslist, find movers that give references and are bonded/credible and do some internet background checks with the Better Business Bureau or other consumer sites and pick the cheapest that looks fine. Honestly.

Q3: The drawback Trent describes to your plan is so miniscule it can be disregarded, compared to the advantages of contributing to a Roth IRA this year, and, barring an emergency, having that money compound until you retire.

His first objection is something you already addressed in your question. Your plan is to max out the Roth IRA contribution and put the rest of your e-plan money in another account. There’s nothing at all wrong with doing that.

His second objection regards an incredibly small part of the overall money you’re saving in your emergency plan as you’ve laid it out.

Put the $5k / year into a Roth. After your e-plan is the size you want, keep adding to it with non-Roth money until your fully funded Roth and e-plan are completely separate.

I’ve complained about this before, but Trent has a real blind spot on this issue.

Q4: throw those artificial scents away, you are doing you and your baby NO favors!

For cats, the biggest, and only that I know of, problem is litter box. Move it to an out of the way place, like the basement, and clean it out every day if you have scoopable litter. We use pine litter and there is NO ODOR and I have a very sensitive nose.

For dogs your best bet is to bathe them often. Most dog owners I know bathe their animals 2 or more times a month.

For diapers, we do several things. 1: all solids get flushed immediately in the toilet, and 2: any stinky diapers then get a wrap in plastic before going in the house garbage can. Don’t buy plastic bags, we use bread bags, cereal bags, chip and pretzel bags etc, which would be garbage anyways. We have one very small kitchen garbage can, and combined with diapers is full enough to be taken out daily. Once a week we scrub down the can.

Natural essential oils are much more friendly to the environment, just a few drops on a tissue or cotton ball in stinky areas can freshen things up.

If you have very stinky pieces of furniture, with spring coming I would wait till it gets a little warmer, then have a carpet cleaning place come and clean the carpets and sofas/chairs. Then keep the doggie off them and give him a nice bed to rest that can be washed often. Even dragging the sofa outside on a nice day to air can help significantly.

I’ve set up my emergency fund in a TFSA (from what I can tell this is Canada’s answer to a Roth IRA in that it is funded with post-tax money, limit of putting in 5k a year, and it grows tax-free). We have 6+ months coverage if we both lose our jobs and cut back on identified recurring costs.

My reasoning was that I don’t know whether I’ll need to tap the emergency fund, so it might as well grow tax-free and try to keep up with inflation and not be clawed back with taxes every year (it’s just in ING savings). Am I missing something that I should have considered?

Q9 – While your son may have a good GPA, I would in no way depend on scholarships as a way to keep him out of student debt. When I graduated high school 6 years ago, I had a over a 3.7 with several college level courses and got $0 in scholarship money. While I probably could have pursued scholarships more, it does become hard to fill out dozens of applications when it always seems like the same kids get all of the scholarships (in my high school, 3 students that graduated with 4.0’s got over $60,000 in local scholarships, while everyone else was lucky to get $250-1000). Similarly, my little sister (5 years younger) just graduated and had a similar GPA, plus with Fall, Winter and Spring sports, and got a $250 scholarship for her freshman year only. While I definitely understand that not all school districts are the same, or Mary’s son may have other circumstances that make him “more eligible” for scholarships (such as significant volunteer time, the fact that he attends a private school, local connections), Mary and her son should not assume there are thousands of dollars worth of scholarship money out there just for the taking. Especially with college costs going up and the economy being slow, competition is going to be fierce for every dime, and unfortunately a 3.7 GPA may not really cut it anymore.
I’m assuming if he’s going to college in less than 2 years, he’s a junior right now. So my suggestion would be to tell him to work extremely hard to bring his GPA up even more this school year and the next. Then I would make sure he either works over the summer to begin saving cash, or put in some serious extracurricular time (either volunteering or job shadowing in a field he is interested in) to maximize his chances. However, it will probably prove incredibly difficult to convince him to stay in his hometown to go to college. I know when I was that age no one could convince me that my student debt would be hard to handle, but here I am, a college grad with tough (but not unmanageable) loan payments, and now my warnings to my younger sister, who is attending the same institution, are falling on deaf ears. Anyway, my point is, DON’T depend on scholarships, they are not guaranteed, no matter how good your GPA is!

Q4 – cat litter – we use a nonscented scoopable type & clean it regularly – no odor. I find the scented ones too much – they make me & the cat sneeze! I’ve also found the odor factor is greatly reduced when we feed the cat a non-cornmeal based food.

@#24 sjw, the TFSA *is* a great vehicle for emergency savings because it is so flexible and tax sheltered, but a TFSA even better for long term capital appreciation for retirement.

Reason being that with low interest rates right now, you’re only sheltering 1.5% of $5000 a year, which is $75, taxed at 30% means you have saved about $22.50 in taxes. Not worth really writing home about.

But if you use the TFSA to hold index funds for the long haul and get a decent 6 or 7% return, you save about 4 times as much. The Canadian stock market has risen huge since the TFSA was introduced in 2008, while interest rates have been record lows.

With interest rates so low, the income isn’t enough to worry about sheltering, so for me I’d keep my emergency fund in a taxable account and use the TFSA for equities. Just my 2 cents.

On question 6 – there are several books and websites out there that offer cost estimates for having (and raising) babies. I’d start by googling “cost of having a baby,” and going to your library and looking for baby books. I found a wealth of (free) information by doing these two things.

The Baby Center website has a good one that starts out with defaults, but you can then edit based on your situation (ie their default has a $10k cost the first year, when I edit for our personal situation it drops to under $5k). It also calculates what are one-time costs and what are ongoing costs. Note: This doesn’t include the medical costs, which vary widely based on your insurance.

For medical, I’d recommend checking with your insurance company. I know people who have spent as little as $300 out of pocket for ALL maternity care and the birth, with others who have spent $5-6k with insurance and anywhere in between. Without insurance, the cost could be anywhere from $5k-$50k depending on your situation.

Q1 – If you decide to have the discussion with your grandmother about being gifted the stock before her death, keep in mind that the stepped-up basis you receive when you inherit DOES NOT APPLY when you receive it as a gift. So depending on the gain your grandmother’s stocks have seen, it may be preferable to wait to receive them until after she dies.

Question 6: I would make sure that there is enough room in the budget for expensive formula even if the mom is sure she’s going to breastfeed. There’s too many things that can happen to change this. You can always go cheap on clothes and most equipment, but if your baby requires a special formula, there’s not a good and safe way around that expense.

Yes, I agree if you buy a board game for $40 and play it for an hour you don’t get your money out of it.

However, if you pay $40 for a board game that you play with your spouse (2 players) for (2 hours) a time with an average of 1 game a month for the next 3 years; you’d end up with a 28 cents/hour cost. [$40/(2x2x1x12x3)] THAT is what I’d consider frugal.

If on the other hand you buy a $40 board game, play it with the spouse for 2 hours, then they decide they hate the game and never want to play it again. You don’t have to keep the game, you can probably resell or re-gift it. If you bought a $40 board game, and resell it for $25; you’ll still end up with a $3.75/hour cost. That’s still cheaper than seeing a movie, or going to the bar for 2 hours.

Re: Q9 – Your son’s GPA of 3.7 is probably not going to be earning him many scholarships. To give you an idea, the average weighted GPA of admitted students to UCLA in Fall 2010 was 4.37 and unweighted was 3.87.

Personally, I don’t think you should be helping your son go to school if you can’t afford it for yourself. If you already work for an institute of higher learning, does your school have a relationship with other schools? My best friend’s dad was a professor and the school he taught at and the one we attended had an agreement so he got discount tuition even though it was out-of-state.

Also, why are you spending $500/month on private school tuition? You’re already carrying a huge debtload. I’m really just curious about this one. I’ve never really understood the appeal of spending huge sums of money on private schools.

Regarding #4: There’s more than just eliminating smells to make your home smell nice. I totally understand this because I have a (stupidly large, massively unfrugal) perfume collection. If Sarah is used to using scented plug-ins, baking soda just ain’t gonna be the same thing.

A good compromise–rather than spending $15 a month for a scent regimen–is to buy something durable like an oil warmer. You can get metal or ceramic ones for like $10 (there are glass ones, too, but I don’t recommend them – they crack!) You light a tea light beneath it, and put some scented oil on top, let it warm for a while, then blow the candle out. It’s kind of like a scented candle, but you have more variety, in that you can choose your own scents.

Alternately, Sarah could also maybe mix a drop or two of flavored extracts into her baking soda and water mix, which would give it a nice odor relatively inexpensively.

Oh, and more on #4: you can also find a lot of cheap scented products at dollar stores and Big Lots, if it’s something you just *have* to have. It’s important to test them first–some of the less expensive products can be vile, but some are actually quite pleasant.

AdamP – good points. Now that we’ve moved our emergency fund over, we’re planning on using the 2011 space for long term/retirement, and being more aggressive in that, so the tax-free growth is more meaningful.

@33 and 34: The private school tuition might not be as negotiable as it should be.
My mother taught in the local school system when my sibs and I were in school, and she refused to send us to the public schools. It was for a variety of reasons, ranging from her opinion of some of her co-workers teaching skills to her belief that we should be allowed to grow up without her looking over our shoulders all day, every day. (She taught one of those classes that everyone has to take, no exceptions.)
There might also be religious reasons why #9 chooses private school, or the public school may simply be untenable, for any of a number of reasons. Frankly, $500/month for private school is cheap where I live. Based on my husband’s experiences with the school system where we live now, I expect to be spending 2-3x that (each) to send our children to private school. And I’ll consider that a darned good investment in their futures.

Great answers to some good questions. I have two points to add:
Q2: The specific amount to keep in your emergency savings fund is always difficult. You need to also consider if your company is going through layoffs soon or will your expenses be rising soon (pregnancy, etc). Sometimes you need more than 6 months worth of savings.

Q10: Right on on this answer. TINSTAAFL means “there is no such thing as a free lunch”. Essentially, there are only 24 hours/day. To do one thing you often have to forego doing something else. We all have to make choices on what to do or not do each day.

Q1 Joe: Under current and typical estate tax laws you should have no tax bill for yourself for such an inheritance. You’d only pay taxes if the value of the stock goes up after you inherit them. If there is an estate tax bill then that is paid by the estate. But given current law (at least for 2011 until it changes) the $3M would be below the $5M exemption and the estate would owe NO taxes. You maybe thinking about 2010. In 2010 they repealed the estate tax entirely but made it so that inherited assets had no capital gains adjustment (step up). So in 2010 if someone had inherited stocks then they might have had a tax bill if they had later sold them. But that was only 2010 and has since been changed.

Q2 Katie : asked : “would you suggest using the available credit on your paid off credit card as “part” of your emergency fund?”

No. Do not use your credit card as any part of your emergency fund. Credit card companies can cut your limit at any time so you can’t depend on that.

Q3 : As others have said the Roth limit is $5000 or $6000 if you’re over 50 years old.

Q9 Mary : YES do apply for income based repayment on your student loans if you’re eligible. If you can get it theres no reason not to do it as far as I’m concerned.

You should not feel obligated to support your kids 100% through college. You seem to be barely getting by now with credit card debt, student loan debt and only $700 in savings. You need to ensure your family is financially safe before you pay for their college. Unless you have a high income or high assets we don’t know about your son should qualify for financial aid. You should not need to feel the burden of paying for all their college just so they don’t have loans. If your son is set on going to some expensive out of state school then they can pay for it themselves or get funding via scholarships. You can offer to help them with room and board at home and tuition assistance at the university you work at. You don’t need to pay for all of his college. If he gets some loans it won’t be the end of the world. Your best advice should be to encourage him to get a useful degree that will help him get a well paying job and recommend he look for a good reasonably priced public school rather than an over priced private college.

You should also encourage your son to at least apply to some cheaper colleges including the local option as a backup plan. Even if he has his heart set on going to some expensive out of state school then he should at least have a backup school in case he doesn’t get in or doesn’t get the funding he expects.

I just had my first child 6 weeks ago, so I can help you out a bit. I found the book “Baby Bargains” very helpful because reviews lots of products and recommends things at all price points. You DO NOT have to spend thousands of dollars. We bought our crib and matress at Wal-Mart for less than $200, a glider at Target for about $250, and a solid wood dresser at a local, unfinished furniture store for about $400. You really don’t need a changing table, just use the top of the dresser.

As for maternity clothes, I lucked out because a co-worker gave me her maternity clothes. I probably spent about $150 on new clothes. Target and Old Navy both sell nice clothes, and you can often get good sales. Your wife won’t need tons of clothes, no one expects a pregnant woman to have 30 different outfits!

My number one piece of advice is to save up for maternity leave. My employer offers no paid maternity leave at all, so my husband and I started saving money is a special “maternity fund” before we even started trying to have a baby. I’ve been off work since the end of January and won’t be returning until the beginning of July with no worries about paying our bills.

Q9: I’m glad you want to help your son with college expenses! It’s definitely something I want to do with my children in the future. However, if you’re paying, you should be able to choose the place. Otherwise, offer to cover the amount of expenses you would cover if he stayed home to help him with the more expensive out-of-state costs. And be ABSOLUTELY clear that you WILL NOT help him repay the loans he accrues by choosing a more expensive college. And there is hope. Once your son graduates you’ll have $500 more a month to pay on your school loans and he’ll be living on his own (with all the associated costs removed from your worry). Be clear with him that it’s time for him to step out on his own. It will be really good for him. Covering for his mistakes only makes him a weaker person.

Q6: Also take into consideration how generous you and your wife’s parents are. My parents bought a ton of stuff for our nursery, so we didn’t end up spending much money at all on start-up costs. Also, what is your family and friend support group like? Will you get a huge baby shower? Can you rely on any relatives to buy expensive items like car seat and crib? Also, some “necessities” aren’t necessary at all. And yes, cloth diapering and nursing can save you a ton. I didn’t take much advantage of the consignment sales in the area, but those can save you a bunch of money, too. I chose cheaper items, though, than I could have (my crib was only $150 instead of $500–but then my parents bought it anyway) by shopping around and not just going to Babies R Us. If you want new stuff, compare Target, BRU, and diapers.com for the best prices on items with good reviews. Read a lot and do a ton of research on which items you’ll want to spend more money on and which you won’t. Good luck.

Liz, another good option, if you have more than 1 child, is to give up owning, and rent a house in a blue ribbon school district. We do not own, but our kids attend a top tier public school, and we pay about half as much as anyone around us per month to live here. The average home cost is 1.2 mill (even now), but we pay 2100/m rent. Two kids, great education. Saved about 80K in private school tuition- the going rate in the region for 4 years here, 2 kids. Paid off too- daughter just got into MIT, with an option for a completely free ride (grad school too) at U. Pitt.

We are still also paying off hubby’s 60K PHD loan. He is a prof, but our kids likewise have no intention of going where he teaches.

Breast feeding is natural. It is not, however, THE most natural thing in the world. Perhaps it’s one of about 4 trillion things that are tied for the ‘most natural thing in the world’.

There are a great many things that are perfectly natural that are appropriate to ‘sterilize’ on a family blog. Your objection with Trent is that you don’t think breast feeding is one of those things. I happen to think that you’re correct about breast feeding being an appropriate topic for candid discussion but not the part where you imply that anything ‘natural’ would therefore be ‘appropriate for candid discussion on a family blog’.

Q9 – “Our kids goes to college in less than 2 years and I am paying for a state college fund/plan for him, monthly.”

I would cease this monthly payment/deduction immediately. You need to get your own financial house in order first!

That is clearly not a necessity – put some money towards your credit card debt and your emergency fund instead. Look at it this way – the less money going towards CC debt (after it’s gone), the more money you have to put it towards something else.

I agree with the other posters saying that he will need to make his own decisions and mistakes. It’s great that you want to help, but make sure you can keep afloat.

I am also a little confused about Q#2 cost of moving- I moved a household of a 3 bedroom/2 bath home over 1000 miles, from a major metropolitan CA city to Oregon and it cost $1800 total for a moving company for the furniture and a U-Haul truck for everything else. When we moved from a rental to the new home we bought in the same city, we paid $200 for the moving company. I know it might be a little cheaper in Oregon, but wow,I also think that $5K-$6K is an awful lot for moving costs in the same city.
Also, I’d never count on the amount of credit on a credit card as part of an emergency fund. If you have that kind of an emergency, the last thing you need to do is take on more debt…plus, inevitably, when you ‘need’ to use credit, the credit card company somehow knows and cuts back the amount of credit you have. Funny how it works that way :)

Michele,
In NY, you have to provide first and last month’s rent, security deposit, and a 1-month rent fee to the realtor if one is involved. Often they are now, as landlords want tenants vetted, and credit checks. So if your rental is 1500, it can easily cost 4500 to move, plus the moving van, and any incidental costs like gas, and a meal for helpful friends. Add in window shades, and you are well over 5K.

Matt- you read way too much in. I did not mean to imply an overarching argument. Just that breast-feeding is not an “adult” word, and does not require a euphemism in this context. Or in any context I can think of.

@ kristine – thank you for adding more details (I said kind of the same thing higher up); I had no idea there are realtor fees for apartments! Don’t forget that some utility companies will require up front deposits. There may also be pet deposits if Katie has a dog or cat, and I’ve seen a few apartments down here in VA that have one-time resident service fees (for pool and fitness room maintenance, etc). We just moved in a moderately inexpensive area and it still cost us over $2000 up front (and we didn’t have any utility deposits or last month’s rent).

#4….. Google the product “Odor-no-more” This product isn’t widely available at the moment, however it is in the new products stage at several large kitty litter companies. It has won product of the year at several pet industry trade shows and you won’t find another product that eliminates odors like this one.

Q4. i have used charcoal as an odor eater for awhile and it works well. i buy the cheapo brand without lighter fluid and place a chunk or two in a small bowl or cup. i can tell when it is ready to be changed.(and i can still grill with it)i have also found some large blocks of it and use them in the basement to help absorb the extra moisture.
vinegar and water 50/50 works well as a spray. it neutralizes odors better than any kind of masking agent i have tried. just a squirt or two in the air every couple of days helps.

@Q3,
If you decide to use the Roth IRA as an emergency fund, I would highly recommend this one tip: Wait until as close to the deadline to contribute the amount for the year before (around April 15th of the following year) as possible.

One stipulation about Roth IRAs is if you withdraw money from a Roth IRA, you lose the ability to replace that money after 60 days. If you suddenly need that money you just put in, the clock is ticking to put it back. Therefore, wait as long as possible before you contribute that money. Just stick that money in a regular savings account so you still have it for emergencies, but then as April 15th approaches, put the money into the Roth, as at that point you have nothing to lose.

Q3 & Q7 I have used my Roth as my E fund for many years, with no problems (knock on wood). I’ve not yet had an E fund that required me to touch it, and I keep the money in the Roth (the part that’s doubling as an E fund, which is no longer the whole balance of the account) in cash. Eventually I’ll get to where this isn’t necessary but for now it’s useful.

Q6 for us the biggest kid expenses were … my lost income (cut back from 40 to 30 hours/week for year 1 and lost 25% of income; I was fortunate in that this did not affect my benefits, but at many US employers it would); childcare; updating our wills, medical, buying a new (to us) car (I didn’t want to keep driving my old pickup and put a carseat on its front seat … and as it was 15 years old, I figured replacing it wasn’t extravagant). The material stuff pales in comparison to those. Had I not been able to cover my maternity leave with extant paid time off (banked vacation and sick leave), that too would have been quite high on the list of expenses.

Q4: When we finally moved into a house with a basement, my husband and I bought a Cat Genie. It self cleans anywhere from one to four times a day (depending on the number of cats), or you can set it to clean each time a cat uses the box. The litter granules are constantly reused – though they do need to be replaced from time to time. Our basement smells…well, it smells neutral, which is much, much better than smelling of cat box! It is expensive, but it was a wonderful move for us! Also, I have used a mixture of alcohol, water, and essential oil to make my own linen/room spray. And baking soda, sprinkled in the carpet and vacuumed up, makes a great odor beater.

Kristine- if Q#2 is moving in the same city, she will have the same first and last month’s rent plus security deposit to consider- and she’s already paid a fee for a realtor if she lives in the same place- so no added costs there and she’s already paid a ‘one month’s fee’ to another ‘agent’ if she goes that route as well as first and last…and security deposit is also refunded unless you leave the place a nightmare…it’s a fixed amount, how can that be an ‘additional’ cost??

Courtney- if you are a renter in the same city, why would you need to pay ‘another’ security deposit for utilities? Don’t they keep them when you move from one place to another? And if you move so far in the same city that you switch utility companies, don’t you get your deposit back when you leave that other company? So it’s a wash…not additional moving fees. This makes no sense.
And- in most cities, if you are an established customer, the old company forwards your previous pay schedule to the new company and there is no new fee. Unless you are a late payer, or a non-payer, it’s not a problem. And if you are a non-payer or late payer, do you really blame them for wanting extra security?

Michele – It’s not *immediately* a wash, because you will have to pay the new deposits up front but it can take 30-60 days to have your old security and utility deposits returned. I haven’t heard of companies forwarding your payment history – I’ve only known them to run credit reports so if she hasn’t been renting for very long she may not have a long enough history. I’m not blaming anyone for wanting extra security. I’m just saying it sounds like Katie probably has done her research so let’s give her credit for trying to be prepared instead of assuming that she’s planning to fly in a team of underwear models from Italy to hand carry her stuff from one building to another.

@Q9. I think it is time to sit down with your son and have a reality check. This will probably be difficult for you as you seem to want to shelter him from the reality of your situation. It is time to go over your budget line by line with him and have him assist at the bill paying sessions. He is also old enough to be trusted with the information of how much money you actually make. When I did this with my sons it was a real eye opener for them. I no longer had to deal with the college fantasies when they knew for a fact that it was not affordable.

@Q1, Don’t bother worrying about an inheritance that may never happen. Nursing homes and other end of life issues can and do deplete entire estates. You might want to find out if grandmother has invested in long term care insurance.

-You can go to the local school where you get a tuition waiver (perhaps sweetened with also getting some books/housing/expenses support)
-You can go out of state/town, but completely on your own expense, including us not cosigning any loans.

are very reasonable for your son. He needs to apply to a lot of different schools, compare the financial aid and overall “fits” of each school, and then make the decision that feels right to him. You know what’s worse than graduating with a ton of debt? Taking on a ton of debt and then not graduating because the school you went to was a crappy fit for you. I put myself through 4-year school (with generous scholarship/Pell/IL MAP help). Could I have gone to the local community college for 2 years and graduated college with significantly less debt? Yes. Do I regret making the decision I made, even though it’s making my two post-college years of aggressively paying the debt down a lot leaner? Absolutely not. College was the best experience of my life, personally, academically, and professionally.

(I don’t know if you live in a state big enough to make out-of-town-but-in-state an option to him, but a lot of states have extra college funding for kids who go to school in-state, even for private schools–might be a compromise option.)

Applying to small private schools should also be encouraged–they have a high sticker price, but most give significantly more financial aid than larger schools.

Most people live out the last month’s rent, so they can have an overlap with the new place, to paint and clean. And while I have always gotten my security deposit back- I know many people who have landlords stiff them, especially if they did not get a receipt for the deposit. Pretty common. You are wise to have 4 months rent available to move, just in case you need it to get in the door.

I will chime in as the lone voice in support of home warrenties, at least in some situations. it is true that these programs are set up to make money overall, like any form of insurance. It is also true, however, that if you are a frequent USER of the insurance, the odds can certainly be in your favor (ie, in health, the two families paying the same for group coverage. Family “A” with two healthy kids is paying WAAAYYY more than they use, but Family B, with two special needs kis, is getting a huge payback on their insurance dollars.)

Well, in housing, we are Family “B”. We bought an older home with frequent issues a few years ago, when we were still digging out of debt. It was easier to budget a small amount for insurance than have to put repairs on a credit card–AGAIN! Not a year has gone by that we have not gotten hundreds to thousands of dollars of repairs done above the cost of our premium, which has not changed.

When we have a fully funded emergency fund we will probably drop the coverage, but until then this lets me sleep at night, protecting our home and major investment.

Maybe the problem has been resolved since I heard about it, but I recall hearing that child-internet-safety filters sometimes block pages with the word. Specifically, there was a kid who was trying to do research on cancer at the library and couldn’t access the pages. I’m not saying this blog has a lot of readers in the grade school demographic, but if you’re trying to make your work available to the widest possible audience, including those who might read at the library, this is something to try to anticipate. (Maybe it was just a flaw of programs in their infancy.)

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